LeapRate Exclusive… LeapRate has learned from people close to the situation that Cyprus financial regulator CySEC is getting set to issue directives which would ban entirely the issuing of bonuses to retail traders.

We also understand that CySEC, in the same decision or separately, may also limit leverage allowed to be provided to retail traders by CIF licensed brokers, possibly to as low as 50:1. However we understand that no final decision on leverage has yet been made.

The main gist of CySEC’s 2015 consultation paper and new directives was increased transparency, requiring brokers to make it very clear to clients the terms and restrictions of any granted bonus.

The ‘trading bonus’ is a marketing tool frequently used and promoted by Retail Forex and Binary Options. It is almost always presented as a ‘deposit bonus’ – e.g. if the clients deposits $1,000, the broker will top-up the client’s account with an additional amount, sometimes even as much as the deposit itself.

However there is usually a catch – the client only gets to withdraw money after receiving a bonus (beyond the amount which the client actually deposited) after engaging in a certain amount of trading.

The marketing materials and ads used by numerous brokers often did not disclose properly (or at all) the restrictions receiving a bonus would place on traders’ accounts. A number of brokers used previous bonus grants as excuses for delaying or refusing altogether future withdrawals by their clients.

And, as a result, CySEC is looking to ban the use of client bonuses altogether.

As it has done previously with major planned regulatory moves, we would expect CySEC to first issue some sort of consultation notice alongside new planned directives, giving regulated CIF entities an opportunity to voice their opinions on (and/or opposition to) the planned changes.

We expect CySEC to make a formal announcement on the matter in the coming weeks.

We would also note the the regulated binary options brokers and platform providers who have formed the new industry association EUBOA have taken the proactive step of stopping to provide deposit bonuses, and are actively working to get other binary brokers to make a similar commitment. In its attempts to clean up the Binary Options sector, as was exclusively reported at LeapRate last week, the EUBOA has taken aim at both deposit bonuses and streamlining the withdrawal process.

About time. Cysec will have to do a lot more than just banning bonus schemes to really clean up the FX business. Brokers should compete on reputation, pricing, customer service – real things. Not on who gives the biggest freebees out. This should help weed out the little bucket shops who promise massive bonuses to entice unsuspecting retail newbees, and then screw them and take their money, or make the clients trade crazy volumes.

George

this should kill XM’s entire client acqu strategy

Mark C

I think this will be a very welcome change from the perspective of proper brokers. Not so much for a lot of the bucket shops that are depending on bonuses and misinformation to get business.

The number of Belize regulated brokers will go up 🙂

seamoon

Agree. In the end, I would write “regulated” brokers… 😉

Contrarian

No Libertarians out there? Does everyone really want more restrictions on Forex companies? This is how it started in the US until the regulators all but regulated the industry out of existence! Why not just allow the Bonus, but be more active about requiring disclosure. don’t treat people like they’re idiots who need protection. Let traders make up their own minds!

Mark C

These laws are not meant to protect experienced traders. These are meant for your average “retail” client who gets ripped off by boiler room type call centers who are offering “amazing investment opportunities” with “no risk” and great bonuses to entice them. Unfortunately a big percentage of the industry is like that. Especially if you look at Cyprus based brokers. FACT

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